C&S market for movies could have inflationary impact due to OTT aggression

MUMBAI: With digital platforms like Amazon Prime Video and Netflix upping their content game in India, the cable & satellite (C&S) market for movies could have an inflationary impact.

KPMG estimates that the contribution from C&S would grow at a CAGR of 5.7%. While the demand for Hindi movies is growing, the C&S market across regional languages is expected to take a pause, stabilise and eventually grow.

How did the C&S market behave in 2016? Despite broadcasters paying more for Bollywood content, C&S rights as a source of revenue fell 4% to Rs 15.3 billion in 2016 from Rs 15.9 billion a year ago.

The negative growth is due to a steep decline in the C&S rights market for Tamil and Telugu movies.

C&S rights contributed ~11% to the overall film industry revenue in 2016, according to the 2017 FICCI–KPMG Media and Entertainment industry report. The Indian film industry grew merely by 3% to reach Rs 142.3 billion in 2016, mainly due to the negative growth in its key revenue streams like domestic theatricals and C&S.

The C&S revenue market for Hindi movies grew in 2016 compared to the previous year. The growth in the C&S revenue of Bollywood films can be attributed to the A-list star cast or strong box-office performance, whereas films with mid-to-small budgets could not keep pace.

The satellite rights to movies starring Salman, Aamir and Shah Rukh Khan were sold for Rs 500–700 million. The satellite rights to the two highest-grossing movies of 2016, ‘Dangal’ and ‘Sultan’, were sold for about Rs 750 million and Rs 600 million respectively. Rights to category A and category B movies were sold in the range of Rs 250–400 million and Rs 100–200 million respectively, depending on the movies’ target market.

There was a growth in the C&S budgets of broadcasters, which could be due to the launch of new movie channels like Rishtey Cineplex, Zee Anmol Cinema and the expansion of channels to their HD variants requiring different movie library. However, despite increased demand, more than 50% of movies remained unsold on C&S platforms, the report said.

The C&S rights market for southern Indian movies declined considerably in 2016. In the Tamil market, the satellite rights value of big-budget movies is usually in the range of 10–15% of the total production cost. However, regional broadcasters have become discerning with respect to the movies purchased and the price paid for acquiring such rights. In 2016, mostly blockbuster movies with a good star cast were sold to broadcasters while the rest of the films struggled to find a buyer. Even category A movies fetched in the range of Rs 40–50 million as against Rs 100 million in the earlier year.

A similar trend was observed for the Telugu market. Satellite rights value was based on the star cast popularity and success at the box office. Overall, 60% of the movies released every year remain unsold on C&S platform. The demand is expected to improve only if there is entry of new players in the market, the report said.

Marathi films showed an upward trend for top films with a decrease in overall demand. Satellite rights of the top 2–3 movies were sold for around Rs 15 million and other hit films (top 8–10) in the range of Rs 10–15 million. However, the number of movies acquired by broadcasters declined, resulting in an imbalance in the supply–demand scenario. This led to a drop in the prices of films with average performance to Rs 3 million in 2016 from Rs 5–6 million in 2015.

Over the years, broadcasters have taken a pre-release risk and invested heavily in acquiring movie rights. As many films did not perform well, it could not translate into high returns, even in the C&S segment. This made broadcasters cautious in buying movie rights and they have now adopted an incentive-based model driven by the movies’ box-office or television (TVTs) performance. The satellite rights to the year’s highest grosser, ‘Dangal’, were sold to Zee Network for Rs 750 million, making it the highest satellite acquisition price to date. Under this deal, Rs 550 million was minimum guarantee and Rs 200 million was performance incentive.

Pressured by the aggression of certain OTT players, television broadcasters may be compelled to increase their spends on acquiring movie telecast rights.